Watch out, Hawaii taxpayers!

A proposed constitutional amendment to fund the state’s public education system through property taxes will be put on the ballot this fall, with supporters saying the tax would remain low and targeted.

But Hawaii does not have a good history of keeping taxes low.

Currently, all island property taxes go toward the counties, but, if enacted, this proposed amendment would enable the state to capture property taxes for itself — as was the case before the 1978 state constitutional convention gave all property tax powers exclusively to the counties.

The proposal would collect taxes from investment real property valued at over $1 million and direct them to a special state fund.

Tom Yamachika, president of the Tax Foundation of Hawaii, said on Hawaii Public Radio’s “The Conversation,” “The concern is, once a tax is authorized it takes on a life of its own.”

Yamachika reminded listeners about the humble beginnings in 1986 of the state transient accommodations tax (TAT), which started as a temporary 5 percent tax to fund the construction of the Hawaii Convention Center.

“At the time, people said, ‘This is going to be temporary. It’s a way to fund the convention center. And it’s a 5 percent tax, so let’s keep it at 5 percent.’ And then, fast forward to a few years later … not only is the tax permanent, but it’s now 10.25 percent.”

According to transcripts from the 1986 legislative session, the idea for the TAT initially called for it to be a 2 percent tax, but legislators quickly proposed raising it.

Then-Sen. Wilfred “Buddy” Soares said, “I’m rather concerned that the amount of tax from 4 to 8, rather than the 2 that we talked about earlier, is going to be rather difficult to swallow by the industry, but I’m sure that in conference we will be able to work out some very reasonable conclusions on the bill.”

By the time the tax emerged from conference, it was gutted, transformed into another bill and set at 5 percent, with revenues directed to the general fund and the counties, rather than just the convention center.

Since then, the tax has grown to a monstrous size. Just this past year, the Legislature increased it from 9.25 percent to 10.25 percent, ostensively to help fund the Honolulu rail project.

Spare Hawaii’s Beleaguered Taxpayers

Many other taxes in the islands have taken on a life of their own.

According to Yamachika, “The conveyance tax was originally imposed at 5 cents per $100 of actual and full consideration. Now the conveyance tax rates go up to $1.25, and the tax is heavily earmarked.”

The runaway nature of Hawaii taxes should be a lesson to those wanting to create a new property tax to fund education.

Yamachika also noted “The barrel tax was originally 5 cents per barrel of imported petroleum product, and was supposed to be a way to build up a reserve fund for an Exxon Valdez-type environmental disaster. The tax is now $1.05 and is heavily earmarked for uses that have nothing to do with oil spills. It was also expanded to fossil fuels other than petroleum products.”

The runaway nature of Hawaii taxes should be a lesson to those wanting to create a new property tax to fund education.

Although the proposed tax supposedly would be for just public education, the Legislature could, if it wanted, easily redirect the revenues to other projects, effectively making it just another revenue source for the general fund.

In addition, a new tax to fund a state department could lead to other departments seeking special taxes to bolster their budgets.

We can only hope that Hawaii voters in November reject the creation of yet another tax, promoted under the guise of being strictly dedicated to public education and strictly restrained to its initially proposed rate.

If approved, the amendment almost certainly will eventually betray both its original intention and Hawaii’s beleaguered taxpayers.

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About the Author

  • Joe Kent

    Joe Kent is the Vice President of Research and Development for the Grassroot Institute of Hawaii, a non-partisan public-policy think tank which focuses on limited and accountable government in Hawaii. He grew up in Hilo, Hawaii, and spent seven years as a public school teacher in the Department of Education, teaching in both Minnesota, and in Lahaina, Maui.